RBI Faces Pressure to Raise Rates as Hawkish Fed Narrows Rate Gap

The Reserve Bank of India (RBI) may face increased pressure to raise interest rates in October, following the US Federal Reserve's hawkish stance and narrowing rate gap.

The Fed raised its policy rate by 25 basis points to a target range of 3.75-4% in a unanimous decision, while revising its 2026 inflation and growth projections higher.

Yes Bank's research report suggests that the RBI may follow suit, with the probability of an October rate hike increasing due to firm global crude prices, higher headline CPI in August, and rising core inflation.

The effectiveness of any rate hike by the RBI depends on its ability to absorb surplus liquidity, with the weighted average call rate currently at 5.05%.